Employer consequences of late or inadequate responses to claim notices

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Due to the 2008 recession, unemployment insurance (UI) claims increased significantly, and so did the percentage of estimated UI benefit overpayments. The U.S. Department of Labor reported that in fiscal year 2011 alone, estimated federal and state UI benefit overpayments reached $14 billion, representing about 11% of UI claim payouts. Through 30 June 2013, a U.S. Department of Labor report estimates that 19 had an improper UI benefit payment rate over 10%, with six states having a rate exceeding 14%.

Once the issue of UI overpayments drew the attention of policy-makers, the U.S. Department of Labor subsequently unveiled a comprehensive system of reforms under its UI integrity initiative. One aspect of this initiative, included in the Trade Adjustment Assistance Extension Act of 2011 (TAAEA), required states to enact laws that prevent employer accounts from being relieved of UI benefit overpayments resulting from the employer, or the employer’s agent, failing to timely and fully respond to state UI information requests.

Employer consequences of late or inadequate responses to claim notices All employers incur a direct or indirect cost when UI benefits are charged to their accounts. For experience-rated employers, benefits charged to their accounts are used in determining their future state UI tax rates. Reimbursing employers (limited to electing nonprofit and governmental entities) are required to pay directly for benefits charged to their accounts.

Absent this UI integrity provision, an employer’s account could be credited for erroneously collected UI benefits, regardless of whether the employer responded in a timely fashion to the original claim notice. Under the UI integrity provision, once the deadlines are reached for responding to claim notices and other state information requests, employers generally give up their right to have their accounts credited for the overpaid UI benefits.

Likewise, if an employer does not provide complete details regarding the separation from employment (for instance, simply states that the individual should not be eligible rather than explaining the facts surrounding the termination), the employer may be charged for those benefits even if it later found the benefits should not have been paid.

For employers (or their third-party providers) accustomed to perfecting their responses to UI claim notices after the initial determination period, the UI integrity law can have a significant monetary impact.

Many states aggressively impose the UI integrity sanction Federal law gives states the freedom to specifically determine what constitutes a “pattern of failure” in failing to respond to UI notices. Some states follow the federal law closely and do not specify the term “pattern of failure.” Other states are generous in claimants in a calendar year. However, close to half the states prohibit the relief of UI benefit charges after one or two offenses. These “aggressive” states are shown in red in the infographic below.

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